Junk Fees and Residential Mortgage Transactions

In May 2023, the CFPB released a special edition of its Supervisory Highlights that reported on the unlawful junk fees including those in the mortgage servicing marketplace as well as other areas such as bank accounts, student loans, and auto loans.  The junk fees the CFPB discovered in the mortgage servicing arena included charging excessive late fee amounts, fees for unnecessary property inspections, and fake PMI premium charges. For more information see the May 2023 Supervisory Highlights: Mortgage Servicing Special Edition.

In the Spring 2024 issue of CFPB’s Supervisory Highlights, the focus of this edition was mortgage servicing and corresponding UDAAP violations, including those in the area of late fee over charges, charges for property inspections on Fannie Mae loans, and failing to provide adequate descriptions for service fees that were listed on periodic statements.

Also recently in March, there was a CFPB blog post alerting consumers that increased pricing related to closing costs can be considered as “junk fees.”  Closing costs such as origination fees, appraisal and credit report fees, title insurance, discount points, and other fees have risen sharply over the last few years. The blog particularly mentioned concerns with borrowers paying discount points to lower the interest rate and the lack of competition related to credit report fees and title insurance policies.

Just last month, at the end of May, the CFPB released its request for information (RFI) on fees in residential mortgage transactions.  In its release announcing the RFI, the CFPB said that it is interested in why residential mortgage costs are increasing, whether the increase is warranted and how these costs may be lowered.  The CFPB would like input on the following nine items:

    1. Are there particular fees that are concerning or cause hardships for consumers?
    2. Are there any fees charged that are not or should not be necessary to close the loan?
    3. Provide data or evidence on the degree to which consumers compare closing costs across lenders.
    4. Provide data or evidence on the degree to which consumers shop for closing costs across settlement providers.
    5. How are fees currently set? Who profits from the various fees? Who benefits from the service provided? What leverage or oversight do lenders have over third-party costs that are passed onto the consumer?
    6. Which closing costs have increased the most over the past several years? What is the cause of such increases? Do they differ for purchase or refinance? Please provide data to support if possible.
    7. What is driving the recent price increases of credit reports and credit scores? How are different parts of the credit report chain (credit score provider, national credit reporting agencies, reseller) contributing to this increase in costs? What competitive forces are or can be brought to bear on these costs? What are the impacts on consumers of the increased costs?
    8. Would lenders be more effective at negotiating closing costs than consumers? Are there reports or evidence that are relevant to the topic?
    9. What studies or data are available to measure the potential impact closing costs may have on overall costs, housing affordability, access to homeownership, or home equity?

The RFI period closes on August 2, 2024.

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